STATE OF NEW YORK
INSURANCE DEPARTMENTONE COMMERCE PLAZA
ALBANY, NEW YORK 12257

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following
opinion on February 8, 2006 representing the position of the New York State Insurance
Department.

RE: Referrals

Question Presented:

May an insurance broker compensate a non-licensee
for referrals based on a percentage of gross premiums generated by the referrals of the
non-licensee?

Conclusion:

No. Referrals from non-licensees, and compensation
for such referrals, are permissible only if the referrals do not include a discussion of
specific insurance policy terms and conditions and the compensation for referrals is not
based on whether a sale is made. Compensation for referrals based on premiums is
compensation based upon whether a sale is made.

Facts:

A licensed insurance broker would like to compensate
nonlicensees for referrals based upon a percentage of the premium generated from such
referrals. Such nonlicensees would include financial planners, real estate agents, real
estate attorneys, estate planning attorneys, CPAs and/or any other type of advisor. In
some cases, the nonlicensee would refer the client to the insurance broker after the
client mentions his or her need for insurance. In other cases, the nonlicensee may have a
legal duty to mention the need for insurance to the client.

Analysis:

N.Y. Ins. Law § 2102(a)(1) (McKinney Supp. 2006)
provides as follows:

(a)(1) No person, firm, association or corporation
shall act as an insurance producer or insurance adjuster in this state without having
authority to do so by virtue of a license issued and in force pursuant to the provisions
of this chapter.

An insurance producer is defined in N.Y. Ins. Law §
2101(k) (McKinney Supp. 2006) as "an insurance agent, insurance broker, reinsurance
intermediary, excess lines broker, or any other person required to be licensed under the
laws of this state to sell, solicit or negotiate insurance."

An insurance broker is defined in N.Y. Ins. Law §
2101(c), in relevant part, as follows:

(c) In this article, "insurance broker"
means any person, firm, association or corporation who or which for any compensation,
commission or other thing of value acts oraids in any manner in soliciting,
negotiating or selling, any insurance or annuity contract or in placing risks or
taking out insurance, on behalf of an insured other than himself, herself or itself or on
behalf of any licensed insurance broker . . . (emphasis added).

By making a referral to an insurance broker for
compensation, regardless of whether the nonlicensee or the potential insured raised the
topic of insurance, a nonlicensee would be acting as an insurance broker without an
insurance producer license, unless the referral is made pursuant to N.Y. Ins. Law § 2116
(McKinney Supp. 2006), which provides, in relevant part, as follows:

No insurer authorized to do business in this state,
and no officer, agent or other representative thereof, shall pay any money or give any
other thing of value to any person, firm, association or corporation for or because of his
or her acting in this state as an insurance broker, unless such person, firm, association
or corporation is authorized so to act by virtue of a license issued or renewed pursuant
to the provisions of section two thousand one hundred four of this article. For purposes
of this section, "acting as an insurance broker" shall not include the referral
of a person to a licensed insurance agent or broker that does not include a specific
discussion of specific insurance policy terms and conditions and where the compensation
for referral is not based upon the purchase of insurance by such persons.

Thus, N.Y. Ins. Law §§ 2114, 2115 or 2116,
prohibit an insurer or any agent of an insurer from compensating an unlicensed person for
acting as an insurance agent or insurance broker unless the compensation is for a referral
to a licensed insurance agent or broker; and if there is no discussion of specific
insurance policy terms and conditions, and the compensation to the non-licensee for the
referral is not based upon the purchase of insurance by the referred person. Here, the
broker plans to compensate the non-licensees for referrals based on a percentage of
premiums generated by the referrals which clearly are referrals based upon the purchase of
insurance.

Therefore, because the nonlicensees would not be
making referrals pursuant to N.Y. Ins. Law §§ 2114, 2115 or 2116 and would instead be
would be acting as brokers without a license, the Superintendent may determine that the
broker is acting in an untrustworthy manner by paying such nonlicensees and facilitating
the unlicensed activities. As a result, the Superintendent may refuse to renew, revoke, or
suspend the insurance broker's license.

Finally, the inquirer requests a formal opinion of
the Office of General Counsel of the New York State Insurance Department, but the Office
of General Counsel only issues informal opinions.

For further information you may contact Assistant
Counsel Brenda M. Gibbs at the Albany Office.